Dr.T.J.

Kamalanabhan

Management Science II

MODULE 7
Financial Requirement
Financial Requirement

Initial Investment Requirement

Subsequent Cost Requirement

Contingency Requirement

Initial Investment Requirement

Capital requirement for equipment and structures necessary to start

the business

Working capital financial requirements in the form of raw materials,

related supplies and people before a sale is made

Working Capital Financial Requirement

Recruiting a management team

Preparing product specifications

Preparing product prototype design

Product testing

Initial Production costs

Initial Marketing costs

Initial Administrative costs

Subsequent Cost Requirement

Working capital cycle of the business

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Revenue inflow of the business

Matching of revenue inflow to cost requirement

Excess funding required

Contingency Requirement

Contingent factors that are likely to affect the business

The cost related to these contingent factors

Ownership Pattern

Equity Holding

Debt Structure

Venture Capital

Equity Holding

Percentage of Equity contribution in the total financial requirement

Extent of long term control of business

Possible equity allocation to employees of the business

Basis For Arriving At The Sources Of Finance

Forecasts for every quarter for the forthcoming year

Forecasts for a five year duration

Forecast Statements Used For Deciding The Sources Of

Finance

Sales

Production

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Remuneration

Accounts Receivable, Accounts Payable

Overhead Expenses

Capital Expenditures and Depreciation

Start-up costs, fixtures, equipment, etc

Explanations Appended To Forecast Statements

Assumptions made for forecasting the above for a five year duration

Deviation of forecasts from industry average

Debt Structure

Financial Institutions

Private Known Sources

Business houses such as suppliers and

Schemes Of Refinance Assistance

Project Finance Scheme

For setting up new units; preference given to units with export orientation,
import substitution, hi-tech and those promoted by entrepreneurs with a
good track record.

Modernization, technology up gradation, diversification and expansion of

existing well run units.

For setting up of hotels and other tourism related activities as well as

hospitals & nursing homes.

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Scheme For Financing Activities Relating To Marketing

Assistance under the scheme may be availed of for undertaking various
marketing related activities such as:

Marketing research.

R & D, product up gradation and standardization.

Preparation of strategic marketing plan

Advertising, branding, catalogue preparation, production of audio-visual

aids, etc.

Participation in trade fairs and exhibitions, undertaking sales promotion

tours, etc.

Establishing distribution network including showrooms/retail outlets and

warehousing facilities.

Training of personnel in activities relevant to marketing etc

For setting up new showrooms and/or renovation of existing showrooms for

marketing. Such show-rooms could be set up within country or abroad.

Development of infrastructure like permanent exhibition centers, industrial

parks e.g. garment and software parks, marketing emporia, design and fashion
forecasting studios, auction houses (say for floriculture products), container
depots and container freight stations and trade centers (within India and abroad).

Setting up of facilities for providing marketing support to, e.g. data bank,
libraries, internet services, etc. , and assistance to facilitate setting up and
expansion of such services by service providers as may be relevant.

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Working capital term loan requirements and bills discounting facility for
service providers in respect of purchases to be made either directly or through an
intermediary engaged in sourcing such supplies.

Equipment Finance Scheme

For acquisition of machinery / equipment, both indigenous and imported

which are not may or may not be related to any specific project.

Additional need based civil work at existing location, miscellaneous fixed

assets, additional margin money for working capital may also be
considered.

Iso 9000 Scheme

To meet the expenses on consultancy, documentation, audit, certification

fee, equipment and calibrating instruments required for obtaining ISO
9000 certification.

Micro Credit Scheme

Mfis, Interallia May Include

Societies registered under Societies Act , 1860 or similar State Acts;

Trusts Registered under Public Trusts Act, 1920 or similar Acts;

Companies registered under the Companies Act, 1956 including Section

25 Companies;

Non Banking Finance Companies providing financial services to the poor;

Specialized and other Co-operatives such as Mutually Aided Co-operative

Societies etc.; other co-operatives and new type of institutions with focus
on banking e.g. Local area banks.

Any other type of institutions that offer micro finance and related services
may be considered on merit.

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

To create a national network of strong, viable and sustainable Micro

Finance Institutions (MFIs) from the informal and formal sector to provide
micro finance services to the poor, especially women

Financial support was extended to well managed Micro Finance

Institutions (MFIs) for on lending to (individuals/groups) with emphasis on
women, for taking up industrial activities at the micro level.

Foreign Currency Term Loans(Fctl) Scheme

Fixed Assets
For setting up new projects as well as for expansion, diversification,
technology up gradation and modernization of existing units with good track
record covering both indigenous and imported. The units should preferably be
export-oriented.

Working Capital
For working capital purposes which include both indigenous and import
requirements.

Foreign Currency Term Loans(Fctl) Scheme

Pre-Shipment Credit
To enable industries to raise finance at internationally competitive rates as
per Reserve Bank of India guidelines to fulfill their export commitments.

Scheme For Export Bills Financing

To provide post-shipment credit in foreign currency at internationally
competitive rates of interest by discounting of usance export bills / purchase of
sight/demand export bills and negotiation of bills under LCs. Of exporters as also
Export / Trading houses sourcing their requirements for exports.

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Opening Of Foreign Letters Of Credit(Flc)

To enable industries to import capital equipment for new projects, expansion,
diversification, technology up gradation and modernizations of existing units.

Technology Development And Modernization

Fund(Tdmf) Scheme

For purchase of capital equipment, need-based civil works and

acquisition of additional land and need based additional margin money
for working capital.

Acquisition of technical know-how, designs, drawings and fashion

forecast where considered relevant to specific product group.

Up gradation of process technology and products with thrust on quality

improvement comparable with acceptable domestic and international
standards.

Improvement in packaging;

Cost of TQM and acquisition of ISO 9000 Series Certification.

Vendor Development Scheme

To encourage vendors / sub contracting units to acquire capital
equipment, as also the requisite technology (including know how, designs,
drawings, etc) for building up of export capabilities / import substitution including
the cost of TQM and acquisition of ISO 9000 series certification and for
expansion of capacity inclusive of need based additions / modifications to
existing building and additional margin money for working capital requirement for
execution of bulk orders etc.

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Working Capital Team Loan Scheme

To help entrepreneurs in starting their commercial production without
difficulty and during their upscaling of operations.

Scheme For Domestic Factoring

To provide factoring service to the manufacturers by supplying their
products on credit terms to various purchasers in the domestic market with a
view to assisting them in their receivable management as also providing them
with finance against the receivables factored.

Bills Schemes
Bills Rediscounting Schemes(Brs)
BREquipment
For sale / acquisition of machinery on deferred payment terms for
setting up of new units as also for expansion, diversification, modernizations,
replacement, addition of balancing equipment etc.

BRS(Inland Supply Bills)

To encourage bills culture as a method of working capital financing so

as to ensure timely payment. Trade bills arising out of supply of goods
by units and discounted with commercial banks either by the drawer
(seller) or the drawee (buyer) are rediscounted by the banks.

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Direct Discounting Scheme - Components

(Dds-C)
To enable SSI units selling components, parts, etc., to realize the sale proceeds
quickly.

Direct Discounting Scheme Equipment(Dds-E)

To enable manufacturers - sellers to offer deferred payment terms for
credit sales and realize sale proceeds by discounting bills of exchange /
promissory notes arising out of such sales.

Sequencing The Financing

Venture
Capital

Professional
finance

Entrepreneurs
Family and
friends

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Indian Institute of Technology Madras

Public off
Loading/Sale of
Company

Dr.T.J.Kamalanabhan

Management Science II

Types Of Venture Capital Assistance

Seed Capital

Start-up capital

Second-stage
capital

Public Off Loading

Private Placement

Initial public offering

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Private Placement
Insurance Company
Principal Lender
Mutual funds
Financial Intermediaries
Other Financial
Industry Players
intermediaries
Investment companies

Ipo Procedure

Selection of underwriter

Filling of red herring prospectus

Filling of final prospectus

Selecting Bankers to the issue

Selecting the head manager of the issue

Methods Of Underwriting
Firm Commitment
The underwriter states it will purchase all the shares and in
turn will resell the share its customers or to a syndicate

Best Offering
The underwriter states that it will attempt in all good faith to sell
the shares, but if it is unable to sell other some commitment, it will return all the
shares to the company and refund the money paid for the shares.

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Indian Institute of Technology Madras

Dr.T.J.Kamalanabhan

Management Science II

Here the underwriter, if notable to sell the shares does not take
a loss on the underwriting agreement.

Prospectus
Filing Of Red Herring Prospectus
Red herring prospectus is an information document when the
offering price of the share is not given.

This is a preliminary registration

statement.

Filing Of Final Prospectus

The final prospectus includes the offer price.

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